Crude Collapse Continues

Amid growing concerns about the state of the global economy, the ongoing collapse in oil prices is testament to the difficulty encountered by Central Bankers as they attempt to stem the slide in financial assets and create ideal conditions for borrowing and growth. Much of the softness in global trade is emanating in Asia where plunging imports combined with softer economic activity is contributing to lessened demand for oil. Supply conditions remain problematic as evidenced by the most recent Iranian pledge to raise output in order to protect market share, further contributing to the prevailing oversupply problem. Brent crude oil has fallen below $45 per barrel for the first time since 2009 and WTI approaching the lows set back during the last financial crisis. The spread between the two benchmarks is collapsing once again with the difference between the Brent and WTI sliding to just over $5 points.

The Bank of Japan has chosen to stay the course with current monetary policy activities despite missing inflation targets set by the Central Bank and Abe Administration. Speculation of expanded monetary easing measures was met with disappointment as the Bank of Japan keeps existing quantitative and qualitative easing measures intact as the Japanese economy approaches its fifth recession in six years. The country is facing a host of problems including weaker key performance indicators and zero wage growth for years which has hurt consumers as inflation and Yen weakness eat away at disposable income and spending. In concert with the weakness across the sea in China, investors are growing increasingly concerned that the Central Banks are beginning to lose control of their heavily indebted economies, adding to pressure on policymakers to expand stimulus and loosen financial conditions further. USDJPY continues to give ground, rapidly approaching the key 120 support level.